LA Bone Doctors Hit Gold Mine with Cedars Affiliation

Shifting the admitting privileges up from Santa Monica means an extra drive for some Kerlan-Jobe patients but the Beverly Hills address and lavish resources are a better fit with the sports medicine group’s strategic trajectory. Other premium providers may need to make similar choices soon.

Kerlan-Jobe is legendary throughout Southern California and the pro sports community worldwide as the place the Lakers, Kings, Angels Dodgers and other teams go to recover. It’s an all-star practice group.

But a few patients who come into the Santa Monica clinic lately have been surprised to hear that the group has moved its hospital affiliation from nearby Saint John’s – a symbol of the old Hollywood – for trendier Cedars Sinai, 20 minutes east in the heart of Beverly Hills.

On first glance, the logic was fairly straightforward. Cedars Sinai has vast resources and the hall-of-fame reputation to match the multi-millionaire athlete appeal of Kerlan-Jobe’s core patient population. Saint John’s had an aging plant and was bleeding cash before last year’s contentious sale to a national hospital chain forced structural changes.

The star orthopedists evidently went with the star partner. But the trail of the process demonstrates three principles that every physician group with strategic goals needs to keep on its radar.

1. Premium Patients Are Critical

It’s not so much that every patient needs to be rich or famous while middle-class people in pain get nothing. However, the rich and famous can pay more for treatment and will pay a premium for world-class expertise. That’s the good news. A few Kobe Bryant surgeries here and there can subsidize a surprising amount of pro bono research and care.

Of course, keeping the therapeutic package at world-class levels is expensive. A single star patient who needs truly cutting-edge support can bury a practice in sunk equipment costs, consultations, time lost and talent on call. Once you build that platform, you’re pretty much committed to it.

That first star pitcher you work on represents a vast investment. Leveraging that investment to the second member of the team and then to other teams, across other sports helps to amortize the cost and bring that side of the enterprise toward profitability faster.

Like anything else, it takes effort to scale, but the efficiencies scale unlocks are sweet if you know how to capture them. Cedars Sinai has learned how to scale into a $3 billion enterprise where the richest and most famous can congregate for the best treatment around. It’s the first facility the stars think about.

Kerlan-Jobe might be billing at a rate of $30 million a year, which is impressive for its size – under 17 active specialists plus fellows and the emeritus staff – but my guess is that management would have a tricky time building very far from here on their own.

Folding the Kerlan-Jobe proposition into the Cedars Sinai platform lets the orthopedists achieve not only scale but also synergy.

Like any group affiliated with a hospital, they get access to staff, equipment, labs and the back-end support structure that becomes unwieldy if you have to build it yourself for your own private use. But in this case, it’s the right equipment for their brand. It’s the right kind of security, press relations, ability to interact with high-end clients and their entourage.

If it turns out to be as good a fit in reality as it looks on paper, the Kerlan-Jobe team should be able to leverage their investments in people, branding and intellectual property more effectively at Cedars Sinai. It’s a good match.

And besides, complex bone work rarely needs to be done in a 20-minute emergency time frame. The patients who live near the beach can drive in.

2. Innovation Keeps You On Top

In most industries, competition is a zero-sum game: you have to win business from someone else. Medicine is different, but even physicians who avoid competing with each other need to benchmark the care they provide against their own standards of excellence.

Success requires keeping up with the latest technology, which in turn means freeing up the time and capital to invest in the latest clinical innovations.

Nobody wakes up in the morning and consciously decides to become that antique practitioner who still performs routine procedures in the office with what amounts to a reading lamp, some peroxide and a pen knife. When you become that doctor, you’re probably far gone on the way to retirement one way or another.

Everyone else needs to stay current. For groups like Kerlan-Jobe that have already fought their way to the leading edge, that means doing everything possible to keep pushing the envelope.

Part of the Cedars Sinai deal brings the group’s sports medicine research venture into a conversation with the other experimental work being done elsewhere in the hospital complex. That means sharing data on biotech programs, stem cell therapies, new techniques and implant materials working their way around the lab.

We know that Cedars Sinai gets the big grants and works on the big programs. Saint John’s is a perfectly fine facility, but if you want to work with stem cells as a way to regenerate cartilage or wrecked joints, once again, the choice is clear.

Having research-oriented partners also means that the Kerlan-Jobe team will have a stronger framework for commercializing their techniques under the Cedars Sinai umbrella.

Those looking for a way to expand the number of people they can help while building a financial legacy for their families know that intellectual property is the real pot of gold. Frank Jobe is famous for pioneering the Tommy John procedure. His protégés may end up with a stake in all-new and 100% proprietary therapies.

3. Succession Must Always Be Clear

Dr. Jobe died early this year. Robert Kerlan has been gone for nearly two decades. Although their names remain on the letterhead, medicine is a business that focuses on the living.

Reading behind the lines, I have to wonder whether the group kept its hospital affiliation in Santa Monica as long as it did because Jobe never shook his attachment to the notion that Kerlan-Jobe was still a slightly specialized neighborhood clinic.

Of course, while he was still an active face of the group until shortly before his death, he hadn’t been the operational boss in a long time. And operational management had been pushing for a closer relationship with a regional hospital for years, for all the reasons we’ve touched on: scale, marginal capacity, research cooperation and so on.

Saint John’s seemed like the logical choice of partners at first, giving Kerlan-Jobe a place to start delegating support and other back-office functions as well as in-patient care. The hospital had the accountants on the payroll and the beds on the floor, so why not team up?

Evidently Jobe signed off on pulling the plug on the Saint John’s relationship late last year and moving the affiliation out of the neighborhood once and for all. He only had a few months left to live, but so far it looks like he kept his eye on the future of the group, the specialty and the profession itself.

LA Bone Doctors Hit Gold Mine with Cedars Affiliation - overview

Summary: Shifting the admitting privileges up from Santa Monica means an extra drive for some Kerlan-Jobe patients but the Beverly Hills address and lavish resources are a better fit with the sports medicine group’s strategic trajectory. Other premium providers may need to make similar choices soon.

About Author

Senior Editor | Scott is occasionally considered “the greatest secret in the wealth management business,” having tracked developments since 2001 for publications like Research, Buyside and Institutional Investor. An advocate for the trust industry, he has testified to the Nevada Senate Committee on Commerce, Labor and Energy on issues of national competition.

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